Budget 2024: Inflation fear dashes hope of early rate cut

Homeowners banking on impending mortgage relief may have to wait until next year if the federal budget’s cost-of-living measures reignite inflation.

The federal budget may reignite inflation, some economists argue.

Homeowners banking on mortgage relief may have to wait until next year if the federal budget’s cost-of-living measures reignite inflation.

Australians can expect extra money in the coming months from the budget’s rebates and tax cuts, but some economists fear it may become harder for the Reserve Bank to control the economy if taxpayers hit the shops and force it to push out rate cuts until mid-next year.

Independent economist Chris Richardson said the government was acting against the interests of the RBA. “I had hoped that the budget wouldn’t poke the inflationary bear, and to some extent it has,” he said.

“The Reserve Bank is taking money out of the economy, but (federal and state) governments are putting it back in. That does come at the cost of higher inflation.”

All Australian households will receive a $300 credit towards their energy bills, and rental assistance has been increased for the second year in a row as Treasurer Jim Chalmers attempts to artificially lower the two biggest contributors to inflation.

There is now an increased risk of a rate increase in coming months, says PropTrack director of economic research Cameron Kusher, who said rates remaining higher for longer had the potential to influence buyer and seller behaviour and interrupt resilient price growth.

A recent survey by mortgage broker firm Aussie revealed 15 per cent of homeowners were waiting for rates to fall before moving, renovating or refinancing.

“It may lead to potentially fewer people wanting to put their properties on the market, and fewer people wanting to buy or ­delaying a purchase decision until those rate cuts are closer,” Mr Kusher said.

CoreLogic’s head of research, Eliza Owen, said prolonged higher rates could cause the market to run out of steam if new buyers did not begin to filter through the market. She said many people buying now were using the bank of mum and dad or were less reliant on borrowing.

“There is an expiry date to how long the market can be carried by wealthy buyers,” Ms Owen said.

“That demand will probably slow down towards the end of this year and we might see growth rates get a bit weaker. But it’s not going to trigger a substantial downswing.”

The stage three tax cuts will come into play from July, potentially adding hundreds each year to the annual take-home pay of workers earning up to $180,000 a year, which has been likened to two rate cuts.

AMP chief economist Shane Oliver is not too concerned about Australians getting spend-happy, with measures of consumer ­activity confirming many have been avoiding the shops.

“It’s not as if people are getting a cheque in the mail, they are getting a reduced electricity bill or ­reduced rental bill, which makes it a little bit different psychologically,” Dr Oliver said.

“They may be less likely to go and spend it.

“Pandemic savings buffers are now run down, which could lead to a more significant cutback in spending going forward. You could argue the tax cuts may just partly offset that.”

Looking overseas, good news is playing out for homeowners. Sweden cut rates last week, with the EU set to follow in June. The UK and US central banks also looking poised to cut in the near future, which puts Australia in a strong position considering we have trailed behind the North American economic powerhouse by three to five months through this economic cycle.

SQM Research managing ­director Louis Christopher said there were already signs the economy was slowing. The number of jobs advertised had begun to rapidly shrink, which suggested a slowdown in demand for employment. This week, the unemployment rate rose from 3.9 per cent to 4.1 per cent.

“We’ve always been concerned that we might see a second round of global inflation with the increasing geopolitical tensions, which may trigger a second wave of inflation, but we’re not there yet,” Mr Christopher said.